Japanese Brexit-related warning over UK-based manufacturers

By Brian Cantwell February 9, 2018

Captive lessor parent manufacturers Nissan, Komatsu, and Hitachi could move their manufacturing bases out of the UK if Brexit means they become unprofitable, the most senior Japanese diplomat to the UK said outside Downing Street in London yesterday.

Treasury figures released that showed that growth could fall rapidly in the event of no deal being reached, up to 16% in the North East where Komatsu, Hitachi and car manufacturer Nissan are based.

Japanese ambassador Koji Tsuruoka warned that a bad trade deal with the EU could also force car manufacturers to move elsewhere if they could no longer maintain their profits.

UK prime minister Theresa May had said to the Japanese delegation that Brexit would allow the UK to arrange its own free trade deal with Japan.

But this would mean Japanese businesses would have to reconsider their arrangement with the EU if the UK could not guarantee free access to the 500m person EU market.

Tsuruoka said: “If there is no profitability of continuing operations in the UK, not Japanese only, no private company can continue operations. So, it is as simple as that.

“This is all high stakes and all of us need to keep in mind.”

He added: “Our Prime Minister has requested that the Japanese companies be fully consulted and listened to while the UK prepares to engage with the EU on relations of the future of the economic ties between the two.”

Tsuruoka stopped short of saying Brexit was a threat but called for more clarity on negotiations.

He said: “Uncertainty is a very important source of concern, as if you don’t know what will happen in the near future, of course, you will very reluctant to make any decision,” he said. “There is an importance of having clarity in the short term, as well as the longer term, and we have been told that the implementation period or transition period will be discussed and the prospect of agreeing with the EU is very positive. That is the first step that we will appreciate and welcome.”

Japan has a relatively large number of manufacturers with operations in the UK. Many of them have captive finance businesses that operate alongside them, or interact with lessors on vendor financing.

In January, Komatsu Group signed a new cooperation agreement in Europe with BNP Paribas Leasing Solutions for France, Germany, and Italy as of the 1st of January 2018.

Earlier this month, Japanese compact tractor and grass mower manufacturer Iseki UK & Ireland chose Hitachi Capital to provide floor-plan services to its network of 60 dealers across the UK.

The decision was announced at the Bigga Turf Management Exhibition (BTME) show in Harrogate and comes into effect immediately.

Both companies have also agreed to run retail finance options later in the year.

Pre-Brexit warnings resurface two years later

In a letter to the Daily Mirror in 2016, Hitachi chairman Hiroaki Nakanishi said Brexit would force a ‘rethink’ of the manufacturer’s operations and jobs in the UK, and that this view was shared by international investors such as the parent manufacturers of leasing businesses; Siemens, GE, and Microsoft.

Nakanishi said Hitachi had invested a billion pounds creating jobs in the UK’s rail and energy sectors, but that the ‘critical benefit of investing in the UK’ was that it was the best base for accessing the European market of 500 million people.

According to Nakanishi, Japanese companies account for 140,000 jobs in direct employment and supply chain in the UK. He said a survey of these 140,000 employees revealed that 95% did not want to leave the EU because of the threat to their employment.

UK as a footprint to launch into EU

Other captive Japanese lessors have expanded into European markets off the back of successful UK operations.

In February of last year, Hitachi Capital said it was going to enter Germany as part of a strategy to expand its vehicle solutions business within Europe, according to Simon Oliphant, head of vehicle solutions strategy division (Japan).

The acquisition of Noordlease in February 2017 formed part of a wider strategy of European expansion of the vehicle solutions arm of the company, starting with ‘priority countries’.

Oliphant told Motor Finance: “I took a new role which was to fulfill that global strategy and develop a strategy to expand into new territories, and the principal one for me is Europe.

“We have some priority countries, of which the Netherlands was one of those. I came across Noordlease some time ago, and felt they had a good strategic fit for us.”

Leasing Life was told that Germany is a key market Hitachi Capital seeks to enter, owing to its size, and convenience as a location for close by German-speaking countries. Oliphant also said that Hitachi Capital having a presence in Germany would further enable its European growth plans for vehicle solutions.

He added: “We want to be able to support [our customers] Europe, and if you’re going to do that, you need to be in Germany. There’s a lot of international company presence”.

Japanese investment

At the beginning of this year, a Renault-Nissan-Mitsubishi alliance launched Alliance Ventures, a corporate venture capital fund that plans to invest up to $1bn to support open innovation over the next five years.

This confirms reports from last week, suggesting such a move was imminent.

The Alliance said it expected the fund to invest up to $200m in start-ups and open innovation partnerships in its first year.

The aim is to focus on technology entrepreneurs focused on new mobility, including vehicle electrification, autonomous systems, connectivity and artificial intelligence.

With further annual investments, Alliance Ventures plans to become the largest corporate venture capital fund in the automotive industry over the period of Alliance 2022, the strategic midterm plan launched last year by Renault-Nissan-Mitsubishi.

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